China Experiencing Across-the-Board Pay Hike: Terry Gou

Taipei, June 9, 2010 (CENS)--Chinese enterprises, in both the manufacturing and service industries, are experiencing across-the-board pay hikes, in an irreversible trend which is sweeping China "at a speed and power beyond our imagination," remarked Terry Gou, chairman of Hon Hai Group, yesterday (June 8).

At the company's shareholders' meeting, Gou pointed out that Hon Hai's recent pay hikes are just the first wave of the national phenomenon, triggered by the transformation of the Chinese society, a trend which will eventually overcome the resistance of some major Taiwanese-invested firms at present.

Gou noted that the raise of the pay level at the Shenzhen plant of Foxconn, the Chinese subsidiary of Hon Hai, to 2,000 yuan per month for qualified workers is justifiable, since the level meets the local consumption standard, adding that workers at the company's other Chinese plants, including those in Kunshan and Shandong, will also receive pay hikes subsequently. "Foxconn will become a vanguard for high pays," said Gou.

Foxconn, said Gou, however, will no longer pay out a large sum to the families of deceased workers, in order to discourage suicide among workers, and hopes to pass the social responsibility for its workers, including the management of employee dormitories and care for employees, to municipal government in China.

Gou discounted the concern that the pay hikes will wipe out the company's margin, admitting, however, the company would need three to nine months to adjust to the higher labor costs following the implementation of the pay hikes in the fourth quarter this year.

At its shareholders' meeting in Hong Kong yesterday, Chen Weiliang, chairman of Foxconn International Holdings, said that the company is studying how to pass the higher costs from the pay hikes to its clients and expects to complete negotiation for price hikes with clients in two to three months.

Institutional investors figured that an across-the-board pay hikes by the Chinese electronics firms will eventually pass to downstream brand vendors, leading to higher prices for end consumer products, a trend which will dampen profits of contract manufacturers but will benefit China's domestic consumption market.

The pay hikes of Foxconn were followed by similar moves announced by Kentucky chain stores and Pizza Hut chain stores in China yesterday. Economists predicted that the pay-hike wave in China may affect the global economy in the form of exported inflation.